Wages have now stagnated for 15 long years, and Britain is the most unequal large economy in Europe. Doing something about the second of these dark facts must rank as an imperative for anyone even vaguely to the left of centre, while the first is something that just about everyone across the spectrum should agree needs to be fixed.
Wishing for change, however, is not the same as securing it. Breaking Britain’s funk is likely to require some difficult choices and a sustained programme of action. Today, drawing on the work of the brightest economists the LSE has to offer, and the insights of a distinguished panel of Commissioners, including previous Prospect contributors such as historian Adam Tooze and economist Dani Rodrik, the Resolution Foundation* releases a bumper report. It promises a comprehensive strategy for finally getting average living standards moving at a decent clip and for ensuring that nobody is left behind. These sound like modest ambitions, but unfortunately Britain’s recent economic history suggests they could be hard to achieve.
I’m not the right person to review Ending Stagnation, since I’ve spent much of the last several months working with the Foundation as a Research Associate, holding the pen for the team during much of the process, as over 80 research papers were boiled down into the final report. Glance at the Executive Summary for the full list of the recommendations, and a flavour of the evidence and argument. And look out for lots of comment, debate and criticism by pundits with the benefit of more distance than me, concerning exactly what the strategy gets right and wrong.
The one thing I can usefully add in a strictly personal capacity, now that I’ve stepped away from the Foundation and stepped back from all the technical recommendations, is a few thoughts on how far—or not—our politics seems capable of driving through the sorts of changes involved. The report is meticulously nonpartisan, and will have recommendations that will interest all sides: indeed, in and around Jeremy Hunt’s recent Autumn Statement, the government both raised the minimum wage and entrenched “full expensing” for business investment, both measures which are recommended today.
But in practice, the most interesting political question strikes me as being how far the Labour party looks ready to commit to this sort of agenda. I say that not only because the great weight of polling evidence suggests it will be in power within a year, but also because—rhetorically at least—Keir Starmer, who like Hunt is speaking at the report’s launch, and his shadow chancellor Rachel Reeves both sound in tune with it. When it comes to specific commitments, however, the requisite radicalism is evident in some areas, but still notably lacking in others.
A big part of the point of Ending Stagnation is to encourage the state to think more strategically about the shape of economy, and shift the balance towards the high-paying, high-productivity sectors such as internationally tradable services, even if that means relatively less room for less dynamic and less rewarding sectors, such as hospitality and warehousing. This is inherently a very slow game, and any change here will come about through an accretion of small decisions in office. It’s almost impossible to judge the seriousness of Labour’s intent on this particular score until it arrives in power.
But well before the economy can be steered towards a different road which leads to higher pay and shared prosperity, the report also identifies a series of specific roadblocks that need to be cleared out of the way. Let’s focus in on a few and consider how committed the opposition seems to be about tackling each in turn.
In terms of getting the economy growing and average incomes rising, the report’s big argument is that Britain is a country living off its past, not investing in its future, and that this needs to change. The plan for making that switch involves: directly raising public investment; structural reforms to encourage private investment; creating more capacity for activity in the growth sectors; and finally, securing global markets to sell to.
Taking public investment first. After the Autumn Statement pencilled in deep cuts, the starting point is dire. It looks likely to fall whoever wins the next election, and Labour has been beset by recurrent wobbles about the exact sums it can afford. Nonetheless, the party remains committed to considerably higher public investment than is currently pencilled in, thanks to its much-vaunted green investment fund. And that ranks as a big plus.
Turning to business, the report proposes putting under-investing managers under pressure, both from “above” (by rewiring the pension funds, who own so much of business on behalf of their savers, to encourage a longer-term view) and from “below” (by following many continental economies and putting worker representatives on company boards). In respect of the first, the political space for creativity is opening up nicely, because Chancellor Hunt is already eyeing some investment-boosting ideas, freeing Labour to suggest it could go further and faster in consolidating funds and holdings so that it makes sense for financial institutions to become more proactive owners. Putting workers on boards is not yet part of the discussion in the same way, but given there’s no Exchequer cost, it is the kind of thing Labour could float—if it decides it is more interested in signalling radicalism than courting respectability with the existing business establishment.
When it comes to building capacity, the big argument in the report is that the focus should most fruitfully be on Britain’s second cities, the Birmingham and Manchester conurbations, because these have the requisite scale to become humming service industry hubs, yet currently languish far behind London on all the productivity metrics. Again, there is a big question about public funds, because to attract good workers the cities need to be much better places to live, which means serious investment in things like public transport. Perhaps some of that can be done under the heading of green investment: if not, this looks like a gap.
The other crucial capacity-building argument is around planning. One devastating fact in the report is that the UK is unique among the big economies in having seen the amount of built-up land per capita actually fall back during this century. After a cautious start, over the last 18 months Starmer has been increasingly strident in saying this position needs to change. Indeed, this is the only area in which I worry that this safety-first political leader is in danger of over-reach. With a Camden constituency, I’m not sure he grasps how explosive new building always is in the semi-rural constituencies across Middle England, nor how much his blunt metaphors about “bulldozing” through planning laws could come back to haunt him. There are some real anxieties about the countryside, but—from the narrow point of view of economic growth—the only fear is that he could run into an unmanageable backlash. There can be no disputing his ambition.
When it comes to finding markets for Britain to sell into, however, Starmer shows much more of his characteristic caution. The report’s recommendations about developing new service deals are not especially contentious, but in respect of high-end manufactures the verdict is blunt: European markets are in jeopardy, and the way to secure them is to extend something like the Northern Ireland protocol to the entire UK, which means putting the UK back in the Customs Union and something like the single market for goods. This would be a difficult ask in Brussels, whose first instinct would be that the single market is all or nothing—services, the free movement of people and all. But as things stand, it’s still not clear Starmer would even ask the question. Early in his leadership, he pivoted away from his 2019 demand to rerun the referendum towards ruling out all talk of the single market. More recently, though, he has talked vaguely of a “closer relationship” with Europe. The best conclusion in this area is an awful lot hinges on what this phrase actually means.
So much for growth to raise the average—what of ensuring the fruits are fairly shared? Here Labour has much further to go. It has one strong positive, on workers’ rights, particularly in relation to insecure earnings, where deputy leader Angela Rayner—a former care worker—has long been a powerful voice for reform. Last summer saw some unfortunate wobbling, with briefing that any changes would be cautious, but Starmer and Reeves both eventually shored up the position in their conferences speeches, vowing to call time on zero-hours contracts.
Volatile earnings are not a marginal issue: half of shift workers in Britain receive less than a week’s notice of their hours or schedules. New protections here could make a huge difference, especially if coupled to easement of certain arbitrary restrictions on trade unions and broader reforms to give workers a stronger voice. So, too, could “good work agreements”. These would be hammered out between staff and good employers in “problem” employment sectors, and install a new floor for standards for employees within them. Encouragingly, Labour has shown some interest in a scheme on these lines, with social care mooted as a good sector to start with.
The difficulty there, however, brings us to the wider problem with ensuring shared prosperity, which is the relentless context of ongoing retrenchment in public expenditure. Local authorities are, after all, the main paymasters within the care field, and—as more town halls fall into the public sector equivalent of administration, Nottingham being the latest last week—it’s fanciful to imagine they can transform working life for hard-pressed care staff until their own financial emergency eases.
More broadly, amid all the election slogans about “working people”, there can be no forgetting something else. Even setting aside pensioners, 11m of us live in homes where earnings constitute less than half of income—and very many families have no earnings at all. With unemployment still relatively low by historical standards, caring responsibilities and disabilities are the chief explanation. No overhaul of workers’ rights is going to bring prosperity to all of these homes, or indeed do much for the rapidly rising numbers within them who are facing destitution. Nor is it easy to see how poverty for children can do anything other than get worse for as long as ever-more youngsters are affected by the two-child welfare limit, something Starmer has signalled he would keep. Indeed, the government’s own data now records that families with three or more kids are already twice as likely to have to turn to a foodbank as those with just two.
As well as fixing this particular aberration, the report recommends automatically uprating social security benefits in line with earnings. At one level, this is a big change: benefits have generally risen only in line with prices since the 1970s, and have very often failed to do even that over the last decade. But at another level, this is an evolutionary rather than a revolutionary change. It fits neatly with the great progress made on pensioner poverty since benefits for the elderly started to rise with wider prosperity around the turn of the century. Indeed, some of the cost could be clawed back by ironing out expensive oddities in the “triple lock” pension regime, while still keeping payments pegged to earnings. There is no need to fret about the rewards to work, either, which would in no way diminish if wages and Britain’s low basic benefits were to start moving in tandem.
The modest ambition here is merely to stop relative poverty rising—that is, to stop the poor falling ever-further behind. There is surely no meaningful version of shared prosperity that doesn’t achieve that.
The problem, of course, is paying for any increase in generosity to anyone once you accept the context of the government’s latest and extremely stringent spending plans. It is not hard to understand why the “messaging” from Starmer today is all about managing down expectations on expenditure. The looming fiscal dilemmas are sharper than politicians on any side wants to admit, and indeed are even sharper than is obvious from reading a report like today’s which is about the economy, without also factoring in the condition of public services, which ranges from creaking to collapse.
With taxes on income already high, Margaret Thatcher, who Starmer has thrust back into the headlines this week, would no doubt insist: “There Is No Alternative.” But today’s report concludes that wealth and property could and should take more of the strain. After all, the stock of private wealth relative to national income has more than doubled over recent decades, while the revenue raised from wealth has in no way kept pace. The particular proposals today include overhauling council tax so the most valuable properties pay more, and closing various loopholes in inheritance tax. But the detail is less important than the principle.
Back in 2021, Starmer signalled he understood it, stating: “People who earn their money from property, dividends, stocks, shares—capital gains tax, these should all be looked at as a broader, fairer way of raising taxes.” But more recently, Reeves has sought to reassure the wealthy that they wouldn’t be asked to pay any more. Perhaps Labour can duck the issue before the election at the cost of even louder howls of anguish from the rich if they are faced with a large bill afterwards.
What it cannot do however, at least if it is in any way serious about shared prosperity, is wish away the need to stop the poor falling ever-further behind. And at some point, this will involve confronting the question about who pays.
Measuring Labour’s plans against what the experts say is needed to get the economy growing suggests that it is at least on the way to where it needs to be. But when it comes to the challenge of ensuring that the new prosperity is truly shared, it is not yet close.
* The Resolution Foundation is part of the Resolution group, which also owns Prospect, but the two operate independently